Credit Cards

I bought a TV from Circuit City, and got interest free, no payment financing for 3 years on a credit card. I won't pay a penny until the month before I become liable for the accrued interest, and then I'll pay off the whole thing.

So, I'm not paying interest, and I'm not paying off my balance each month, but I'm still gaining a substantial benefit over any other way I could have paid.

(I'm sure such deals had nothing to do with CC going out of business. . . )
 
MattC said:
Well it's a reasonable picture of what happens if you don't pay off the bill each month.
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I'm not sure. Usually I consider "coherent" and "comprehensible" to be prerequisites for "reasonable."

I'm not sure if they were saying "if you never pay off the principle, you are only ever paying off interest" (which is true, but uninteresting), or if they were saying "you pay a higher interest rate if you have a smaller balance" (which is just plain wrong).
 
Michael Redman said:
I bought a TV from Circuit City, and got interest free, no payment financing for 3 years on a credit card. I won't pay a penny until the month before I become liable for the accrued interest, and then I'll pay off the whole thing.

So, I'm not paying interest, and I'm not paying off my balance each month, but I'm still gaining a substantial benefit over any other way I could have paid.

(I'm sure such deals had nothing to do with CC going out of business. . . )
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Actually, they didn't. Those "deals" were actually hugely profitable for CC, because they were charging fairly substantial interest rates (often more than you would be charged on a credit card) and you were liable for the accrued interest going all the way back to the purchase date if you didn't pay it off by the relevant date.

Enough people missed that date to make these deals good for CC, which is why you can also see these deals at Best Buy and in other industries like furniture and home improvements....
 
tensordyne said:
It is a bad deal for the same reason that home loans are a bad deal. If you ever have to pay your credit card down the amount you pay at a minimum is based on how much left you owe, not a flat rate. If you owe me $100 and each payment below $20 has 20% go to interest that can really rack up the profits for me. Credit card companies are the most usurious lenders out there too.
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I'm not sure where you live, but in the US, we have "payday loan" companies with interest rates that make credit card rates seem downright cheap.
 
Michael Redman said:
I bought a TV from Circuit City, and got interest free, no payment financing for 3 years on a credit card. I won't pay a penny until the month before I become liable for the accrued interest, and then I'll pay off the whole thing.

So, I'm not paying interest, and I'm not paying off my balance each month, but I'm still gaining a substantial benefit over any other way I could have paid.

(I'm sure such deals had nothing to do with CC going out of business. . . )
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If a store is offering "no interest for 3 years", you can almost always get a discount for paying cash if you ask for it. The cost of borrowing the money is added to the price. They will generally give you the discount for paying cash rather than risk having you buy it elsewhere.
 
wolfgirl said:
You're saying "most people" don't pay off their card every month, but then saying you don't see the benefit to those of us who have told you repeatedly that we do pay it off every month.

If you don't pay it off every month, I totally agree that it's a bad thing.

If you do pay it off every month, I totally disagree with you that there is no benefit.

1. I earn really good cash-back bonuses.

2. I only pay one bill per month instead of several (utilities, doctors, etc.).

3. Balancing my check-book is easy because there aren't tons of debits in it, just a handful.

4. I never have to worry about forgetting to write down a debit-card use, thus making me think I have more money in my account than I do and getting overdrawn.

5. I never have to think "do I have the money in the account right now" when I make a purchase.

If you don't feel comfortable using a credit card, that's totally fine. But don't make blanket statements that all those of us who do so - and do so responsibly, and have done so for a really long time with no problems and only benefits - are making a bad decision. It works for us. We're not saying everyone should do it. Only that if you do it right, it's a good thing.

It's all about being honest with yourself about what you're capable of doing. If you will not be disciplined enough to only use the card for things you know you can pay for at the end of the month, don't do it. If you will sometimes forget to pay your bill on time so you will end up paying interest after all, don't do it.
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In all fairness to your list:

1) We earn similar rewards on our Debit cards.

2) As far as I know, your utilities still have to be paid every month. The difference is where those bills are paid from.

3) Balancing your checkbook may be easier, however you still have to pay attention to your credit card balance. One could even argue that you therefore have more work to do in tracking your expenses every month.

4) I never use checks and my banks are as good at updating my account status as quickly as my credit card (even more quickly if I use debit instead of credit, although I lose out on rewards points).

5) You must have a relatively high limit on your credit card. But, really, that should always be a thought in your mind - can I really afford this? If it's a latte and you're not sure, then don't order it. If it is a latte, and it's considered relatively chump change to you, then it would the same whether you were using a CC or a check - there's still a limit on how much you can spend.


Not that I'm anti-CC. I have one, with a relatively low limit. I generally use it just to boost my credit by using it for car parts, and then paying it back off quickly.

Those benefits, however, are not the ones you've listed...
 
Almo said:
Wait wait wait wait wait wait.

I thought credit card companies took 4% or something off the top of every transaction using their card! If I'm right about this, they still make money off us even though we never carry a balance.
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I don't know the % (I think it is lower), but yes, this is one way they make money.
 
Segnosaur said:
I can think of several reasons why credit carts would expect to charge higher interest than home loans:

- More risk. There's no collateral with a credit card. So, banks have to charge more to cover people who skip out/default. (At least with a home loan the bank can recoup most of its money by repossessing the house.)

- Nature of the transactions requires more overhead (i.e. hundreds of small transactions over a year, as opposed to a once-per-month mortgage payment.) means more computer processing is needed, more infrastructure, more personnel to handle complaints, etc.
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That and the fact that for many credit cards, the qualification for getting it is that you have pulse increases the risk.
 
Stacko said:
Back in 2004 I was buying a new hard drive and the store I was in wouldn't accept any credit cards because they charged these fees. Unless they've changed their business strategy since then or credit card companies just hate Nova Scotia, I think it's safe to assume they still doing it.
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What I was saying is that it probably wasn't the credit card issuer that is charging the transaction fees.

There is an intermediary that rents the keypads and handles the transaction itself. They do charge the merchant for this service.

The three in Canada are Global Payments, Moneris, and TD/CT (which is a bank).

My impression is that the card brands (eg: "VISA inc") make most of their money from the issuing banks in proportion to the cardholder's monthly spend. Something like 1.5% of volume.

However, the bank is only obtaining revenue from balances that are eligible for interest, so while VISA may be making 1.5% off your monthly spend, issuing BANK X is making -1.5% loss and wants to cancel your card. Their worst case scenario is somebody who uses the card a lot, but never carries a balance.

In order to cover this risk, they may tell these customers they're eligible for a 'better' premium card that coincidentally also has an annual fee, and/or try to upsell to ancillary services such as death/disability coverage for any outstanding balance, lest you be hit by a bus. ie: they're asking responsible customers to pay more money to cover their business risk.

Nice work if you can get it, eh?
 
blutoski said:
What I was saying is that it probably wasn't the credit card issuer that is charging the transaction fees.

There is an intermediary that rents the keypads and handles the transaction itself. They do charge the merchant for this service.

The three in Canada are Global Payments, Moneris, and TD/CT (which is a bank).

My impression is that the card brands (eg: "VISA inc") make most of their money from the issuing banks in proportion to the cardholder's monthly spend. Something like 1.5% of volume.

However, the bank is only obtaining revenue from balances that are eligible for interest, so while VISA may be making 1.5% off your monthly spend, issuing BANK X is making -1.5% loss and wants to cancel your card. Their worst case scenario is somebody who uses the card a lot, but never carries a balance.

In order to cover this risk, they may tell these customers they're eligible for a 'better' premium card that coincidentally also has an annual fee, and/or try to upsell to ancillary services such as death/disability coverage for any outstanding balance, lest you be hit by a bus. ie: they're asking responsible customers to pay more money to cover their business risk.

Nice work if you can get it, eh?
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I love seeing cards that offers a cash back reward program for an annual fee of $79.95 (conveniently charged to your card so they can charge interest on it if it's not paid off immediately). Hidden in the small text is where it states that the maximum annual cash-back reward is limited to $75.

Very nice work indeed :)
 
drkitten said:
I have no idea what this means....
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I think it means "making the minimum payment is a bad idea". I've seen minimum payments so low they don't even cover the interest, so your balance actually increases if you make a minimum payment. Then, if the interest pushes you over the limit, they will charge you a fee for that, and in come cases, boost your interest rate, too. I will concede that credit card companies set a lot of traps for you. You have to be smart enough and careful enough to avoid them. I. e. Make you payments on time, don't carry a balance if you don't absolutely have to, and if you do carry a balance, pay it down as quickly as you can, so the interest doesn't eat you alive.
 
CORed said:
I think it means "making the minimum payment is a bad idea".
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But I don't see how this is a "bad deal"; that's like giving a restaurant hell because they offer high fat food in addition to the salad bar. If you're concerned about what you eat, no one is forcing you to order deep-fried lard,.... and if you're concerned about how much money you're spending in interest, no one is forcing you to make only the minimum payment.

Is this just an abrogation of responsibility thing? "How dare you allow me to do stupid things to myself?"
 
Nursedan said:
Credit cards are such a bad idea!!! Debit cards can do anything credit cards can do, with none of the worry regarding interest. Why someone would take a loan out to buy a sandwich or a pen (which is what one is doing when using a credit card) is beyond me.
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I’m not sure if it’s mentioned above, but if you have the choice between credit and debit you should always use the credit card, unless you really really trust the retailer.

Generally speaking if your credit card information gets compromised the credit card company must prove you were at fault or they are on the hook for any losses. If your bank card gets compromised you need to prove the bank was at fault in order to recover any losses. Possession being 9/10 of the law you will not have to pay for losses on the credit card, but will not get any money out of the bank if it happens on your debit card.
 
blutoski said:
My impression is that the card brands (eg: "VISA inc") make most of their money from the issuing banks in proportion to the cardholder's monthly spend. Something like 1.5% of volume.
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I should point out that the 1.5% is just an estimate based on discussion with colleagues who work in the transaction industry.

The actual rates vary for each bank's contract, and are certainly confidential.
 
lomiller said:
I’m not sure if it’s mentioned above, but if you have the choice between credit and debit you should always use the credit card, unless you really really trust the retailer.

Generally speaking if your credit card information gets compromised the credit card company must prove you were at fault or they are on the hook for any losses. If your bank card gets compromised you need to prove the bank was at fault in order to recover any losses. Possession being 9/10 of the law you will not have to pay for losses on the credit card, but will not get any money out of the bank if it happens on your debit card.
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This is flat out incorrect. My debit card is a Visa and has the same protections their cc have. In fact I have personal experience with theft of my debit card number and had zero problems recovering the funds.
 
drkitten said:
I'm not sure. Usually I consider "coherent" and "comprehensible" to be prerequisites for "reasonable."

I'm not sure if they were saying "if you never pay off the principle, you are only ever paying off interest" (which is true, but uninteresting), or if they were saying "you pay a higher interest rate if you have a smaller balance" (which is just plain wrong).
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I consider it vaguely similar to literary criticism - the author has elected to transmit his feelings of confusion, frustration and rage through his linguistic decisions.

~ Matt
 
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